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14 July 2013

HDB coffee shops are not District 10 bungalows
They were built by the HDB to serve residents on state land acquired for a public purpose

Source: Sunday Times | Think 
By Han Fook Kwang, Managing Editor

Here's a $23.8 million question about Singapore's most expensive coffee shop, in Hougang: How come I can still buy a cup of kopi-o there for 90 cents?

The simple answer is that, disregarding the price of the property, what goes into making that cup of coffee didn't cost much - especially not the wages of coffee shop assistants.

They are likely to belong to the bottom 20 per cent of income earners, whose incomes have stagnated over the years.

Mean-spirited though it might be, it's their meagre earnings you have to thank for your cheap beverage.

If they were paid more, like workers in Japan or Switzerland, for example, you can bet your last teh kosong that you will have to pay a lot more.

That 90-cent coffee represents one part of Singapore, perhaps the part that many of us are fond of even if we would rather not have our livelihood depend on it.

The $23 million Housing Board coffee shop, however, is another story altogether and might as well belong to a different world.

What goes into making up the sky-high price and how did it reach such a level?

When The Straits Times spoke to people in the property business last week, they cited one possible reason: the prospect of capital appreciation of the shop, which means it might sell for an even higher price in future.

If those experts are right, the buyer was prepared to pay the record price not because it made business sense in the running of a coffee shop, but because it was a good property buy which he could hope to profit from at some later date.

Stallholders in the shop were quoted as being understandably concerned that the new owner might raise rents. Patrons were in turn worried about having to pay more for food and drinks.

Alas, the two worlds do collide, and when a $23m deal spills over to a 90 cents cup of coffee, you know what the outcome is likely to be.

But should the price of a cup of coffee be tied to the ups and downs of the property market?

Can't Singaporeans have their kopi without worrying about the next multimillion-dollar deal?

The reality is that in this land- scarce, market-driven country, almost everything is affected by the high price of land and property.

It's a lament I often hear from Singaporean bosses complaining about the cost of doing business here, especially rental cost.

A friend who runs an SME says he regrets selling a building he developed for a tidy profit and renting back some of the floors for his own operation.

His rent has gone up considerably over the years, and the profit he made from the sale has not been enough to cover the rising rent. He did not foresee industrial rentals increasing so much and says he knows others with similar stories.

For residential property, rising prices have led the Government to impose no fewer than eight sets of cooling measures since 2009 with only limited success.

It shows how difficult it is to tackle the problem once a property bubble builds up.

In a normally functioning market, the price of a coffee shop property cannot be so high that it would be impossible for the buyer to recoup his outlay from operating the shop.

If Singaporeans are only willing to pay 90 cents for a cup of coffee, it places a limit on how much that coffee shop itself is worth.

But if the shop is viewed more as a property buy and less as a place to sell food and drinks, its price will have more to do with the state of the property market than the price of a cup of coffee.

Eventually, though, that coffee price will have to go up, as is likely to be the case in that $23 million shop.

This is the same worry many people have over the setting up of real estate investment trusts (Reits) which critics say exert pressure on rentals because of the financial returns these instruments are expected to provide for investors.

They have been blamed for ever rising rentals of retail shops in the malls and industrial property.

Should the Government intervene to stop these price increases?

Or are they the result of market forces and best left unregulated?

The trouble is that, contrary to popular belief, the price of land, and hence property, is not decided solely by free market forces here.

In fact, it is mostly determined by the Government because it is the largest landlord and has control over many policies that affect selling prices: how much land it releases for development, the period of the leases it offers, the zoning parameters it draws up, the actual prices of public flats it builds, the restriction on property loans it can impose and so on.

With so much control at its disposal, the Government has a primary responsibility to ensure that prices and rentals do not get out of hand.

Indeed, it recognises and accepts this, which was why it intervened with all those cooling measures.

But it has to be clearer about what exactly is its overall policy regarding these prices.

It isn't at the moment, and this explains why it dithered in the past and did not act as decisively as it should have when prices moved so precipitously.

It has been only recently that it has taken a clearer position on, for example, public flats.

Earlier this year, National Development Minister Khaw Boon Wan said that when pricing new flats, the HDB would set prices on its own instead of pegging them to resale flat prices.

"We should be the price-setter, not be the price-follower... The social objective is to ensure home ownership and affordability," he said.

In practical terms, it meant pricing new flats in non-mature estates at four times the annual median income of applicants, 30 per cent lower than the current 5.5 times.

That's a good start to making it clearer, more transparent and affordable.

What about coffee shops?

For those in housing estates, such as the one in Hougang, there is no reason why they should be bought and sold like bungalows in District 10. They were built by the HDB to serve residents on state land acquired for a public purpose.

If the price of coffee has to go up eventually, Singaporeans would rather the increase went to those shop assistants and stall holders rather than property players out to make a financial killing.

One simple way to ensure these shops keep to their original objective is to require that they be sold back only to the HDB.

It would put a lid on spiralling prices.

And keep that cup of kopi-o within everyone's reach.

How will markets and economy fare in second half?
Near-term outlook will be determined by one event - the tapering of Fed's money printing

Source: Straits Times | Invest 
By Alvin Foo

China slowing down, euro zone in slump

The global economy and financial markets stand at a crucial crossroad, and look set for further turbulence in the next six months.

The world economy is somewhat on the mend since the global financial crisis but recovery is still patchy and sluggish.

Meanwhile, financial markets are on tenterhooks over concerns that the huge amounts of easy money pumped in by central banks, which have fuelled the recent market rally, may be gradually withdrawn in the coming months.

How things will pan out in the near term will be determined by one event - the slowing down of the United States Federal Reserve's massive money-printing measures.

"All eyes will be centred on when the Fed will start to scale down its asset purchases, as this will have a major impact on how the markets move," said Mr Kelvin Tay, regional chief investment officer for Southern Asia Pacific at UBS wealth management.

Last week, Fed chairman Ben Bernanke hinted that the central bank will not rush to raise interest rates, triggering a market rally across the globe.

His comments were seen as a reversal of his position in late May when he said the Fed would soon cut back its massive stimulus - which sparked market mayhem.

The Sunday Times speaks to analysts and experts on how the financial and property markets as well as the economy will fare in the second half of the year.

1. Rocky road ahead for stocks

As an asset class, most wealth experts are still upbeat on equities relative to bonds or gold.

Stock movements are expected to move in accordance with any Fed announcement or utterance by Mr Bernanke. Hence, stocks will remain volatile in the coming months.

Weaning stocks off easy money flows arising from the Fed's massive stimulus measures will be like getting an addict off drugs, UBS global chief investment officer Alexander Friedman told this newspaper last month. It will cause considerable short-term pain before long-term gain, he explained.

As CIMB research head Kenneth Ng noted: "Markets worry about the end of cheap money."

UBS' Mr Tay expects the Fed tapering to start in December this year or January 2014, with quantitative easing eventually ending next July.

Analysts tip the Straits Times Index (STI) to trade within a narrow range till the end of the year.

CIMB's Mr Ng has a year-end target of 3,400 points for the STI, and advises investors to bottom-pick if the index dives below 3,000.

OCBC Investment Research head Carmen Lee said: "We expect the Singapore market to be volatile, especially in view of the looming Fed tapering and worries over the withdrawal of funds and a higher interest rate environment."

She added that the above factors should limit price gains, but believes the local market should receive good support due to its "undemanding" valuation.

UBS' Mr Tay said Singapore stocks enjoy "safe haven" status relative to other Asian equities on any market volatility triggered by Fed tapering or financial risk in China.

That's because the local market has been less vulnerable to fickle external capital flows than some of its Asean neighbours, and is also less exposed to China than its peers such as Hong Kong and South Korea.

2. Caution takes centrestage for local property market

Caution will be the buzzword for the Singapore residential property market for the rest of the year, say experts.

Overall private residential home prices are tipped to remain flat with a possible slight dip nearer the end of the year, predicted Colliers International research director Chia Siew Chuin.

Developers who have bought land at high prices may face some pressure to adjust prices due to lower profit margins, she said.

They could also become more aggressive in timing and use of buyer incentives for project launches, as it would be more advantageous for them to launch sooner rather than later given the latest changes in rules on home loans, Ms Chia added.

Last month, a new framework was introduced to rein in mortgage lending. Banks will not be able to approve a loan if the monthly repayments of a buyer's total debt obligations exceed 60 per cent of his gross monthly income.

"A combination of high inventory, high completions, buyer and seller stamp duties and low loan-to-value caps should keep price growth in check," said Ms Regina Lim, director and head of Asean Property Research at Standard Chartered Bank.

Over the longer term, analysts such as Daiwa's Mr David Lum warn of the rising risks of a major correction.

Mr Lum expects home prices to slump by 18 to 20 per cent from the end of last year to the end of 2015, mainly due to rising levels of unsold inventory if demand suddenly slows and a record pipeline of new homes comes on the market.

3. Sluggish and uneven recovery for the global economy

The world economy is tipped to remain on the recovery road but it will be a bumpy and uneven ride.

StanChart economist Edward Lee said: "The global economy is expected to put on a better show in the second half, although still subdued on an overall basis."

CIMB regional economist Song Seng Wun said: "Global recovery is still on course, though the pace differs among the advanced and emerging economies."

While the US economy is showing healthy signs of a decisive turnaround, the picture is less rosy elsewhere.

As OCBC economist Selena Ling said: "The euro zone is still stuck in recession, and China is still facing a slowdown in momentum."

Last week, the International Monetary Fund shaved its 2013 global growth forecast from 3.3 per cent to 3.1 per cent, due to a more protracted recession in Europe and a slowdown in key developing countries such as China and Brazil.

DBS chief economist David Carbon said: "Europe remains a drag... it continues to shrink and unemployment there continues to rise."

As for China, Mr Carbon noted that its focus seems likely to remain "firmly fixed on long-term reform rather than short-term speed".

"That's great for the long run, less great for the second half of this year," he added.

4. Singapore economy to get lift from external factors but risks remain

Economists are generally predicting a prettier picture for the local economy for the rest of the year, as Singapore looks set to benefit from the quicker pace of world economic recovery.

Most economists are tipping a full-year growth figure of 2 per cent and above, well into the upper band of the Government's 1 per cent to 3 per cent forecast.

StanChart's Mr Lee said: "Singapore remains a very open economy and will be able to exploit any improvement in the global economy."

Much will depend on whether the US, the world's largest economy, continues to rebound.

Ms Joyce Lim, head of research and advisory at Citibank Singapore, said: "The key driver supporting the positive economic outlook is the expected pick-up in US economic growth."

But she also cautioned that a slowdown in China could affect Singapore's growth in terms of trade, tourism and property transactions.

Other risk factors include the current economic restructuring process, such as the tightening inflow of foreign workers, warned DBS economist Irvin Seah.

5. US dollar to gain ground

The Singapore dollar looks set to concede more ground to the US dollar in the coming months, as the Fed seems likely to cut back on its money-printing programme soon.

Last Friday, the Singdollar was trading at about 1.26 against the greenback.

It could weaken to 1.30 in the third quarter ahead of the expected start of the Fed tapering, before rallying to 1.27 in the final three months, said StanChart's Mr Lee.

"The 1.27 to 1.28 region looks like a conservative assumption for the next six to 12 months," said OCBC's Ms Ling.

CIMB's Mr Song said: "Our forex strategists believe the US dollar's strength is here to stay."

Inflation is projected to rise in the coming months from April's 1.5 per cent as COE premiums head up after bottoming in May.

Citi's Ms Lim said: "Inflation is expected to creep up to 2 to 2.5 per cent for the rest of the year, with 2013 inflation forecast to remain at 2.5 per cent."

The local labour market will remain tight, with the unemployment rate likely to stay low around the 2 per cent mark for the rest of 2013.

Bali's pricey villas, with rice fields attached

Source: Sunday Times | Think 
By Wahyudi Soeriaatmadja, Indonesia Correspondent, In Kerobokan (bali)

Not long ago, the developers of villas in Bali would pressure rice farmers living nearby to accept long-term land leases so that tourists could have undisturbed peace.

These days, though, more farmers are staying put - at the developers' request.

Today's tourists prefer to pay high prices for rustic charm.

Indeed, a two-bedroom villa with rice paddy fields on one side and a lawn where buffaloes graze on the other now goes for at least 15 million rupiah (S$1,950) a month, or at least one million rupiah a night, compared to only 500,000 rupiah a month in the past.

Such prices are increasingly common in Bali as other popular spots on the resort island, like the beaches at Kuta and Legian, fill up quickly and tourists search for quieter alternatives.

Areas such as Seminyak, Kerobokan and Canggu, which have beautiful beachfront areas mixed with lush farmland, are increasingly popular.

"Foreign tourists love the village feel here," said Mr Anak Agung Kris, 43, an architect. "It is near the beaches and not too far from the crowd centres. It's like everything in one basket."

The surge in construction in these areas is testament to their growing popularity.

Developers are not only building stand-alone villas, but also townhouse-like complexes consisting of 10 to 25 units of villas with price tags of at least four billion rupiah each.

For instance, a barely finished, 7,200 sq m villa townhouse called the Premium Club Residence in Canggu has 18 units with prices ranging from four billion rupiah to 5.5 billion rupiah.

But the hefty prices have not deterred investor interest in these villas.

On the contrary, the Premium Club Residence, which has a view of a rice paddy field and is five minutes from the nearest beach, had only a few units left for sale when The Sunday Times contacted the developer's office recently.

"It's a good investment. Tourists get a private swimming pool and pay a similar rate to that of a hotel," said Makassar resident Rudy Syamsuddin, who three months ago bought a new villa in Umalas village in Kerobokan.

"Demand is high as villas are more attractive."

The tourists seem to agree.

"Bali is big. There are many choices. This quiet area is one good choice," said a tourist from China who visited Bali with his wife and toddler, and stayed for several days at the Bali Merita Villa in Umalas village.

Such high demand has fuelled the soaring price of land here.

In Canggu, for instance, land sold for 150 million rupiah per 100 sq m five years ago, according to Mr Agung.

Prices have soared since then, from 450 million rupiah per 100 sq m two years ago to 750 million rupiah today.

Beachfront property now goes for as much as 1.3 billion rupiah to 1.8 billion rupiah per 100 sq m.

The farmers are not complaining, however.

They are earning triple the income from their land - which brings them rental fees from villa developers, monthly pay for farming and profits from the sale of the harvested crops.

"These farmers feel lucky and think they benefit so much from such transactions," said Mr Agung. "But the real truth is that the investors are the ones who benefit the most."

Mr Agung Made Sukodanau, a farmer in his 40s, is quick to pour water on that view, however.

He said that the property tax on his farmland in Kerobokan is so high that he struggles to make a profit from selling the harvested rice.

"So, this rent business is a way out for us," he said.